While the UK is enthusiastically encouraging mediation for civil disputes, the legal standing of mediation settlements may appear rather flimsy and frail without the clout of a court judgment or the New York Convention to back them up.
The non-binding nature of a mediation settlement means there is nothing stopping one side from ignoring it, even if the settlement was supposedly satisfactory and consensual. Non-compliance is of particular concern in cross-border mediation settlements, especially when in commercial disputes.
The risk is that a settlement obtained in the UK may go back to a company in Asia, Africa or Latin America which – without a judgment or arbitration award – may well refuse to comply. This could be because senior officials were not happy with the agreement or some of the terms of settlement are impractical to meet.
In such a scenario, the subsequent task of enforcing the agreement can seem daunting and costly because it is recognised as a contract rather than a ruling. The only legislative protection comes via the EU Mediation Directive, which came into force in the UK in 2011. It allows parties to apply for a mediation settlement enforcement order (MSEO) to make any agreement enforceable by a court.
Some EU members, such as Germany, Italy and the Netherlands, have adopted this approach for domestic matters but in the UK a MSEO can only be obtained for cross-border disputes with parties from the EU. Domestic UK or non-EU settlements remain neither final nor binding. The only legal recourse is to claim a breach of contract should one side fail to honour the agreement, which can be problematic as it involves going back to court and engaging in another civil case, which can make the case even more expensive.
To ensure that domestic or non-EU settlement agreements have the same influence as an arbitration award or court ruling, lawyers encourage parties to enter into litigation before engaging in mediation. This provides the option to include a provision during the case that any mediation settlement can be ratified by a judge, meaning a lengthy breach of contract claim would not need to follow a failure to comply.
“While it is true that a mediation agreement is a contract, it is usual for parties engaged in litigation to concur that any successful mediation will result in an agreement being put before the court that can be turned into a court order to facilitate enforcement,” observes Andrew Paton, a partner at Pinsent Masons.
Even so, obtaining a court order still has limitations. The nature of mediation settlements are far more nuanced than those in litigation or arbitration. Many civil disputes have financial damages as a central remedy but damages are often only one consideration in mediation settlements so the powers of the court to enforce non-financial provisions comes into play.
“The scope of a mediation settlement agreement can go beyond monetary matters and include a variety of other remedies, such as apologies, new contracts, discounts or the provision of certain services,” explains Alexander Oddy, a partner at Herbert Smith Freehills. “If there was a failure to comply with these, the English courts can grant specific performance which is an equitable remedy, but there are limits on what the court can require parties to do. The key is to make sure the points in any mediation settlement agreement can be realistically achieved.”
Indeed, there is only so much recourse that can be obtained by an equitable remedy, whether an injunction, specific performance (an order for a party to undertake a specific act) or rescission of a contract so – while a MSEO provision for EU disputes or a court order for domestic and international matters protects against the need to launch further civil proceedings – ensuring that a settlement is satisfactory and realistic is the ultimate protection.
To this end, many mediators say the issue of enforcement has never been a practical consideration because, despite the apparent risk, anecdotal evidence suggests that failure to comply with a settlement has been rare to the point of non-existence.
“I have not experienced an instance of a party refusing to comply with a mediation contract in more than 800 cases across my 24 years in mediation,” claims Paton. “That is not to say it does not happen but, unlike a court judgment, a mediation contract is a consensual agreement so it makes little sense to avoid a court case only to go back to court for enforcement.”
This may change as more parties are pushed into mediation for civil litigation reluctantly. If so, the UK retains the option of bringing in a MSEO for domestic disputes, reviewing the legal standing of mediation settlements or extending the equitable remedy remit. But, for the time being at least, it appears that a person’s word continues to be their bond.
This post was written by Antony Collins who is a freelance journalist. He can be contacted at email@example.com